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1. The Effect of Paid Peering Fees on Broadband Prices and Consumer Surplus

   Nikkhah, Ali ; Jordan, Scott ( September 2021 , The Research Conference on Communications, Information, and Internet Policy (TPRC))

   null (Ed.)

   Internet users have suffered collateral damage in tussles over paid peering between large ISPs and large content providers. The issue will arise again when the FCC considers a new net neutrality order. In this paper, we model the effect of paid peering fees on broadband prices and consumer surplus. We first consider the effect of paid peering on broadband prices. ISPs assert that paid peering revenue is offset by lower broadband prices, and that ISP profits remain unchanged. Content providers assert that paid peering fees do not result in lower broadband prices, but simply increase ISP profits. We adopt a two-sided market model in which an ISP maximizes profit by setting broadband prices and a paid peering price. To separately evaluate the effect on consumers who utilize video streaming and on consumers who don’t, we model two broadband plans: a basic plan for consumers whose utility principally derives from email and web browsing, and a premium plan for consumers with significant incremental utility from video streaming. Our result shows that the claims of the ISPs and of the content providers are both incorrect. Paid peering fees reduce the premium plan price; however, the ISP passes on to its customers only a portion of the revenue from paid peering. We find that ISP profit increases but video streaming profit decreases as an ISP moves from settlement-free peering to paid peering price. We next consider the effect of paid peering on consumer surplus. ISPs assert that paid peering increases consumer surplus because it eliminates an inherent subsidy of consumers with high video streaming use by consumers without. Content providers assert that paid peering decreases consumer surplus because paid peering fees are passed onto consumers through higher video streaming prices and because there is no corresponding reduction in broadband prices. We simulate a regulated market in which a regulatory agency determines the maximum paid peering fee (if any) to maximize consumer surplus, an ISP sets its broadband prices to maximize profit, and a content provider sets its video streaming price. Simulation parameters are chosen to reflect typical broadband prices, video streaming prices, ISP rate of return, and content provider rate of return. We find that consumer surplus is a uni-modal function of the paid peering fee. The paid peering fee that maximizes consumer surplus depends on elasticities of demand for broadband and for video streaming. However, consumer surplus is maximized when paid peering fees are significantly lower than those that maximize ISP profit. However, it does not follow that settlement-free peering is always the policy that maximizes consumer surplus. The direct peering price depends critically on the incremental ISP cost per video streaming subscriber; at different costs, it can be negative, zero, or positive. 

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2. When is Regulation of Peering or Usage Fees Warranted?

   https://doi.org/10.2139/ssrn.4512343  

   Nikkhah, Ali ; Jordan, Scott ( January 2023 , SSRN Electronic Journal)

   Debates over paid peering and usage fees have expanded from the United States to Europe and South Korea. ISPs argue that content providers should pay fees based on the amount of downstream traffic they generate. In contrast, content providers contend that customers already pay ISPs for delivering the content they request, and therefore that peering agreements should be settlement-free. The issue has arisen in debates in the United States, Europe, and South Korea over net neutrality, universal service, and infrastructure funding. Regulatory entities are considering whether to regulate peering prices and/or impose usage fees. A key part of the debate concerns whether the market determines the socially beneficial peering price, and if not, how much of a difference there is between the socially beneficial peering price and the market-determined peering price. Our objective here is to understand the range from a cost-based peering price to a profit-maximizing peering price. First, we determine an ISP’s cost for directly peering with a content provider, by analyzing the incremental cost for transporting the content provider’s traffic when it directly peers with the ISP versus when it sends its traffic through a transit provider. We find that this cost-based peering price is positive if there is little localization of content, but it is zero (i.e., settlement-free peering) if there is sufficient localization of content. We also find that the required amount of localization varies with the number of interconnection points. Next, we determine the peering price that maximizes an ISP’s profit using a two-sided market model in which a profit-maximizing ISP determines broadband prices and the peering price, and in which content providers determine their service prices based on the peering price. We find that the profit-maximizing peering price decreases with content localization. These prices establish a range if the peering price is unregulated, from the cost-based peering price (at the low end) to the profit-maximizing peering price (at the high end). Regulatory oversight of peering prices may be warranted when there is a substantial difference between cost-based and profit-maximizing prices. 

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3. Towards Equitable Peering: A Proposal for a Fair Peering Fee Between ISPs and Content Providers

   Nikkhah, Ali ; Jordan, Scott ( December 2023 , IEEE Transactions on Network and Service Management)

   Disagreements over peering fees have risen to the level of potential government regulation. ISPs assert that content providers should pay them based on the volume of downstream traffic. Transit providers and content providers assert that consumers have already paid ISPs to transmit the content they request and that peering agreements should be settlement-free. Our goal is to determine the fair payment between an ISP and an interconnecting network. We consider fair cost sharing between two Tier-1 ISPs, and derive the peering fee that equalizes their net backbone transportation costs. We then consider fair cost sharing between an ISP and a transit provider. We derive the peering fee that equalizes their net backbone transportation costs, and illustrate how it depends on the traffic ratio and the amount of localization of that content. Finally, we consider the fair peering fee between an ISP and a content provider. We derive the peering fee that results in the same net cost to the ISP, and illustrate how the peering fee depends on the number of interconnection points and the amount of localization of that content. We dispense with the ISP argument that it should be paid regardless of the amount of localization of content. 

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4. How Can Equitable Peering be Achieved Between ISPs and Content Providers?

   https://doi.org/10.1109/ICCCN58024.2023.10230173  

   Nikkhah, Ali ; Jordan, Scott ( July 2023 , IEEE)

   Disagreements between Internet Service Providers (ISPs) and content providers over peering fees have risen to the level of potential government regulation. ISPs assert that content providers should pay peering fees based on the volume of downstream traffic. Content providers assert that consumers pay ISPs to transmit the content they request, and thus peering agreements should be settlement-free. We determine the fair peering fee between an ISP and a transit provider or content provider. We first consider cost sharing between an ISP and a transit provider. We derive the peering fee that equalizes their net backbone transportation costs. We illustrate how the peering fee depends on the traffic ratio and the amount of localization of that content. We then derive the peering fee between an ISP and a content provider that results in the same net cost to the ISP, and illustrate how the peering fee depends on the number of interconnection points and the amount of localization. We use these results to dispense with the ISP argument that they should be paid regardless of the amount of localization of content. 

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5. Are the Settlement-Free Peering Policy Requirements for ISPs and CDNs Based on Network Costs?

   https://doi.org/10.2139/ssrn.4178682  

   Nikkhah, Ali ; Jordan, Scott ( August 2022 , TPRC (the Research Conference on Communications, Information, and Internet Policy))

   Peering is an interconnection arrangement between two networks for the purpose of exchanging traffic between these networks and their customers. Two networks will agree to settlement-free peering if this arrangement is superior for both parties compared to alternative arrangements including paid peering or transit. The conventional wisdom is that two networks agree to settlement-free peering if they receive an approximately equal value from the arrangement. Historically, settlement-free peering was only common amongst tier-1 networks, and these networks commonly require peering at a minimum specified number of interconnection points and only when the traffic ratio is within specified bounds. However, the academic literature does not explain how these requirements relate to the value to each network. More recently, settlement-free peering and paid peering have become common between ISPs and CDNs. In this paper, we construct a network cost model to understand the rationality of common requirements on the number of interconnection points and traffic ratio. We also wish to understand if it is rational to apply these requirements to interconnection between an ISP and a CDN. We construct a model of ISP traffic-sensitive network costs. We consider an ISP that offers service across the US. We parameterize the model using statistics about the population and locations of people in the contiguous US. We consider peering at the locations of the largest interconnection points in the US. We model traffic-sensitive network costs in the ISP’s backbone network, middle-mile networks, and access networks. These costs are thus functions of routing policies, distances, and traffic volumes. To qualify for settlement-free peering, large ISPs commonly require peering at a minimum of 4 to 8 mutually agreeable interconnection points. The academic literature provides little insight into this requirement or how it is related to cost. We show that the traffic-sensitive network cost decreases as the number of interconnection points increases, but with decreasing returns. The requirement to peer at 4 to 8 interconnection points is thus rational, and requiring interconnection at more than 8 points is of little value. Another common requirement is that the ratio of downstream to upstream traffic not exceed 2:1. This is commonly understood to relate to approximately equal value, but the academic literature does not explain why. We show that when downstream traffic exceeds upstream traffic, an ISP gains less from settlement-free peering, and that when the traffic ratio exceeds 2:1 an ISP is likely to perceive insufficient value. Finally, we turn to interconnection between an ISP and a CDN. Large ISPs often assert that CDNs should meet the same requirements on the number of interconnection points and traffic ratio to qualify for settlement-free peering. We show that if the CDN delivers traffic to the ISP locally, then a requirement to interconnect at a minimum number of interconnection points is rational, but a limit on the traffic ratio is not rational. We also show that if the CDN delivers traffic using hot potato routing, the ISP is unlikely to perceive sufficient value to offer settlement-free peering. 

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